Hey There Income Hunter,
I have to give Jerome Powell credit.
He convinced the media retail investors that the economy is strong, which should allow him to hike rates even further.
I say this because over the past few trading days we’ve seen …
>> Powell all hawked up at a business conference, once again proclaiming that inflation is way too high.
>> The market has priced in an additional .50% of rate hikes, taking the total to 7.5 rate hikes this year. That makes it 6.25 to go.
>> The US 2-year Treasury has moved up to 2.145% from 1.80% just last week.
Stocks and bonds have behaved like they used to — with stocks up and bonds down ….
However, it is really global bond yields that are trading in sync and exploding higher, with the rise continuing yesterday.
That has me elated that I booked profits on the Power Income Trader ETFMG Silver Miners call spread for a gain of 110%.
It’s been an incredible move for the metal miners because they historically have traded poorly when the Fed is in tightening mode.
Today, I’ll give you a deeper look at global rates, their impact in the US and what we can expect in the weeks ahead.
Global Interest Rate Trends
The US has moved to the middle of the pack. So, it makes sense that US rates have been pressed higher and higher, no matter what the economy or the stock market has been doing …
Hard to believe the US 10-year Treasury note is nearly 2.5%. Meanwhile, check out 30-year fixed mortgage rates rising to pre-covid levels:
Rates do not move this much without having a negative impact on consumers and the economy.
The way he is screaming about how strong the economy is, Powell must be super nervous about higher rates breaking something in the financial system.
Last year, Powell went on and on about transitory inflation … then flipped and said it was time to retire transitory. Now he’s going on about the strength of the economy, and I bet he’ll have a million excuses when he has to admit we are in recession.
Will Bonds Break Out to Higher Rates?
Notice the reverse head and shoulders in the chart below. Head and shoulder patterns are powerful signals of money flows.
The pattern consists of the head, plus a shoulder preceding and following it. You connect the two shoulders, which form the neckline, and if the neckline is broken, you go with the breakout. The target price is equivalent to the distance from the head to the neckline.
In this case, the neckline comes in at 2.5%, a critical level, and it has now been broken, with the 30-year bond yield closing yesterday at 2.61%. If the pattern holds, we are looking at a potential move to at least 3.5%.
Bring It Home
I will be watching bonds closely because. Interest rates are a great forecaster, and with all the risk cross currents, they are more important than ever.
It will get very interesting in the weeks ahead. The next Fed meeting is not until May 16 and Powell is basically a lame duck chairman since his job at the Fed has yet to be officially confirmed.
So, he may have to sit back and let rates continue to soar higher, which is a dangerous move. But, it’s typical with the Fed since they usually sit back and wait for a breakdown in the financial system before reacting anyway …
So, stay tuned for more drama, and as always ..
Live and Trade With Passion My Friend,
Griff